The future of cryptocurrency is here, and every investor needs to be prepared for all the changes it’s going to bring – not just to investing, but to nearly everyone’s daily life.
I just returned from the three-day Consensus 2019 cryptocurrency conference in New York. Although I have followed this space closely since 2011, when I first discovered Bitcoin, some of what I learned surprised me.
My big-picture takeaways are:
- Much more progress has been made in the cryptocurrency sphere than people realize.
- The blockchain technology that underpins cryptocurrency will touch many facets of our lives.
- As the many pieces fall into place over the next couple of years, they will create a massive tailwind for crypto prices, with Bitcoin leading the way.
Yet the specifics are even more impressive. We’ll start with how blue-chip firms are turning to the blockchain to innovate…
The Future of Cryptocurrency Is Happening Now
Crypto products and services fall into two broad categories: those that are blockchain-based and those that serve the needs of trading cryptocurrencies as assets.
What struck me at Consensus 2019 was how many of these products and services have moved from development to reality – and how many household names are adopting the tech.
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International Business Machines Corp. (NYSE: IBM) announced its blockchain-based platform for tracking food through the supply chain, the IBM Food Trust, last October. It allows producers to trace food from its origin though processing and distribution.
Food producers can use this data to streamline their systems, but the benefits go beyond that. Many consumers today want to know where their food comes from and how it’s produced. Plus, when tainted food ends up in grocery stores and restaurants, blockchain technology greatly speeds up the process of tracking down the bad items so they can be pulled before people consume them and get sick.
In a pilot program, IBM said it was able to cut the time it took to trace bad food from seven days to 2.2 seconds.
I also stopped off at Microsoft Corp.’s (NASDAQ: MSFT) booth at Consensus to learn about a similar “blockchain-as-a-service” product it launched less than a month ago. The company has linked the new tech to its rapidly growing Azure cloud service and counts such companies as Starbucks Corp. (NASDAQ: SBUX) and JPMorgan Chase & Co. (NYSE: JPM) among its customers.
At the same time, dozens of startups are solving problems that have served as roadblocks to the adoption of cryptocurrencies, particularly in the area of investing.
These companies are building the digital infrastructure of the future…
Startups Chopping Down Barriers to Cryptocurrency Investing
Several significant “pain points” have discouraged both individuals and institutions from putting more money into cryptocurrencies.
Here are the major areas where startups are creating solutions to those pain points:
- Custody/Security: A concern for both individual and institutional investors is making sure their crypto is safe. Companies like Paxos, BitGo, and Nukkleus Capital all were touting solutions to these issues at Consensus.
- Clearing and Settlement: The clearing and settlement system for equities is robust and well established, but has been lacking in the wild world of cryptocurrency trading. BitGo is building a sophisticated clearing and settlement system that fulfills compliance requirements and minimizes counterparty risk. This is exactly the sort of service veteran traders require. Nukkleus Capital also offers clearing and settlement services aimed at institutional clients.
- Compliance: Governments still don’t know how to regulate digital assets and markets, which means laws and enforcement are constantly changing. More than a dozen federal agencies in the United States claim some sort of jurisdiction over crypto, and individual states like New York and Wyoming have passed their own laws. Chartwell is a company that helps crypto and other fintech companies navigate these choppy waters.
- Trading Data: For professional traders, having accurate, real-time data is essential. And they can get it from reliable sources like Bloomberg and Thomson Reuters. But unlike with stocks, where trading is limited to a handful of exchanges and trading only happens between certain hours, crypto trading goes on 24 hours a day at hundreds of exchanges scattered all over the world. At Consensus, I ran across two companies looking to fix that. Lukka’s goal is to normalize and consolidate crypto asset data to assist traders and improve financial reporting. Another firm, Xena, launched a tool this month that aggregates and charts live data from largest crypto exchanges.
These solutions will make investing in cryptocurrencies easier, but several regulatory pieces need to fall into place for crypto investing to become commonplace.
As these pieces come together, we’ll see a massive movement of capital into Bitcoin and other cryptocurrencies, driving prices up rapidly.
Here’s what I learned at Consensus about where the regulators stand on crypto – and it was more optimistic than I had assumed…
What U.S. Regulators Really Think About Crypto
The first thing that surprised me was the number of regulators present at Consensus. SEC Commissioner Hester Peirce appeared for an onstage interview, as did SEC Senior Advisor for Digital Assets and Innovation Valerie Szczepanik (pictured).
Other government entities represented included the Commodity Futures Trading Commission (CFTC) and the U.S. Treasury. Two Congressmen were also there, Rep. Tom Emmer (R-MN), a co-chair of the bipartisan Congressional Blockchain caucus, and Rep. Warren Davidson (R-OH), a member of the caucus who co-authored the Token Taxonomy Act.
Listening to what they had to say, two themes emerged:
- Regulators don’t want to crush crypto – Just about every regulator I saw made a point of saying they recognized the potential of cryptocurrency and blockchain and very much wanted to encourage innovation.
- They’re being deliberately cautious – The regulators are aware that the crypto community would prefer they move faster. But their paramount responsibility is to protect investors and ensure fair markets. Digital assets are still new, hard to classify, and trade in markets with little to no oversight. They counseled patience.
The regulators are in a tough spot in that they can’t rush new rules, and in some areas need Congress to craft new legislation (passing the Token Taxonomy Act would help greatly).
At the same time, there’s pressure to move forward because other parts of the world are ahead of the United States when it comes to regulating crypto.
The European Union has created a blockchain unit to assist crypto entrepreneurs as well as several other initiatives to push development of the technology. China prioritized research on blockchain technology in its most recent five-year plan. Many believe the United States is falling behind.
Maybe that’s why in a Consensus session on the likelihood of SEC approval of a Bitcoin ETF, Perkins Coie LLP Managing Partner Keith Miller predicted we’d see it by the end of this year.
The SEC in particular holds the key to unleashing hundreds of billions of dollars into crypto markets…
Oceans of Money Waiting on the Sidelines
Rui Carvalho, the Global Head of Product Management for Connectivity and Feeds for Intercontinental Exchange (ICE), said in one panel discussion that a tradeable ETF and regulatory clarity were two of the four things institutional investors are looking for. (The other two were transparency and liquidity.)
Carvalho also said that despite the difficulties associated with cryptocurrency investing, 20% of institutional investors currently hold some crypto. That suggests a desire to own this new asset among a group of investors that could pour tens of billions, if not hundreds of billions, into the space.
Given Bitcoin’s history of parabolic increases, it’s not hard to see how such a catalyst, combined with everything else happening in the world of crypto and blockchain technology, could push the price of Bitcoin beyond $100,000 over the next couple of years.
While it’s easy to be optimistic in the wake of attending a major cryptocurrency conference, I believe such optimism is justified.
Crypto is a major tech revolution on par with the PC revolution of the early 1980s or the Internet revolution of the mid-1990s. It’s that big, and it will have an equivalent economic impact.
And it’s all starting to happen right now.
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